In the course of my blog adventure, I am privileged to meet people who shared with me their financial insights unselfishly. From them, I gleaned some knowledge on Singapore’s finance sector from the perspective of a retail investor. One of the important lessons I learned is what does being an accredited investor really means in Singapore.
Before you skip this article, take note that being an accredited investor is NOT about taking financial courses to qualify for investing in risky products. It’s about how much money you have in your bank and your earning income bracket.
Under Securities and Futures Act Paragraph 4A, an accredited investor means:
(i) an individual —
(ii) a corporation with net assets exceeding $10 million in value (or its equivalent in a foreign currency) or such other amount as the Authority may prescribe, in place of the first amount, as determined by —
What does the above mean for Accredited Investors (AIs)?
This means that those who are classified as an accredited investor are not offered the regulatory protection as retail investors because they are deemed to be more financially savvy and can afford to fail in their investments. However, in today’s context, such view may not hold water. There are many successful entrepreneurs or working professionals who have more than $2 million savings and earn more than $300,000 annually but this does not necessarily qualify them to be financially savvy. Their assets and earning abilities only reflects their expertise in their niche, which may not necessarily be in the finance areas.
The most important thing that should be noted is that once being deemed as an AI, financial advisors can push riskier products and forgo the benefits of the regulatory benefits in exchange for potentially higher returns. To be frank, in Singapore, it is not difficult to attain $2 million in savings or having $300,000 annual income. Many retirees who used to work in the civil service, lawyers, engineers, businessmen and doctors can meet this criteria. So it is not fair that the regulation does not cover their interests in this respect.
Plugging the loop-hole
With effect from 22 September 2015, Monetary Authority of Singapore (MAS) seeks to address the above issue with enhanced regulatory safeguards for accredited investors. MAS will refine the regulatory regime to empower AI-eligible investors to choose the level of regulatory safeguards best suited to their individual circumstances:
- Financial institutions (FIs) will have to treat new customers who are AI-eligible as retail investors by default, unless the customers choose to “opt-in” to AI status.
- FIs can continue to treat existing customers who are AI-eligible as AIs, unless the customers choose to “opt-out” of AI status to benefit from the full range of capital markets regulatory safeguards available to retail investors.
AI-eligible customers who choose to “opt-in” to, or retain their, AI-status may be those that are willing to forgo the benefits of stronger regulatory safeguards available to retail investors, in return for the ability to more easily access a wider range of complex and risky products.
The above regulatory changes were implemented after a consultation conducted in 2014. However, wealth builders should not be complacent and must recognize that regulatory safeguards cannot be substituted for investors’ responsibilities. Investors should still be responsible for their own money decisions and do their own due diligence before investing in any form of products.
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